block chains and consensus algos

Block chains and Consensus AlgorithmsBY JERRY D CHANWALLSTREETTECHNOLOGIST.COMBITTOKU.CO.JP

Public Block chain (Bitcoin,Ethereum)

Block chain, not Blockchain!

A collection of transactions

Time-stamped grouping in blocks

Proof of Work to decide sequencing

Token to incentivize validators (block writers) to remain in consensus

Public, permission-less, censorship-resistant, pseudo-anonymous

Private Block chains (Consensus Ledgers)

aka distributed ledgers, aka private block chains

Shared multi writer database

Control and participation in the network is private/permissioned

Ownership of the assets represented is public

Use of cryptographic keys to restrict asset ownership changes into the ledger

If no PoW, why blocks?

Private Block chains vs multi-writer Dbs

Better immutability guarantees with simplified audit trail

No super-user roles

Ownership of the data / Ownership of the Db

No central 3rd party acting as a gatekeeper for controlling the modification of that data

Token vs Token-less◦ PBFT + Merkel Root + PGP + P2P + TRUST == Private Block chain◦ PBFT + Merkel Root + PGP + P2P + TOKEN == Permissioned Block chain

Are they secure?

Benefits of Private Block Chains Allows a group of companies to pool resources and reduce costs in a trust reduced way

Local money corporate money

Real time settlement between counterparties (for certain markets)

Potentially replace SWIFT, but only if money is taken off banks and put into settlement chain

Potentially replace 3rd party settlement business, trade aggregators/netting services

Benefits of Public Block Chains Global permission-less

Trust minimized

Censorship resistant

Commodity like deflationary money which is not based on debt

IoT, DAOs, DACs

Internet vs AOL, Napster (mp3), Telecoms (skype), Personal Banking (?)

Potential Issues Flash crash (liquidity) risk

Increased attack risk

Systematic risk

Legal risk

Operational risk vs Systematic risk

About me Blog: wallstreettechnologist.com

twitter: @digitsu

jerry.d.chan@bittoku.co.jp

Proof of Stake More akin to equity shareholder voting.

Weak subjectivity (external systems required to ensure truth)

Cheap simulation, nothing at stake problem

Internal network Value->Security

Proof of Work Alignment of incentives, and reduces the risk of dishonest actors, the more valuable the token becomes

Objective truth

Solution to Byzantine generals problem

Energy->Security->Network Value